Question

TIF 23-1 Ethics in Action ETHICS Sembotix Company has several divisions including a Semiconductor Division that sells semiconductors to both internal and external customers. The company's X-ray Division uses semiconductors as a component in its final product and is evaluating whether to purchase them from the Semiconductor Division or from an external supplier. The market price for semiconductors is $100 per 100 semiconductors. Dave Bryant is the controller of the X-ray Division, and Howard Hillman is the controller of the Semiconductor Division. The following conversation took place between Dave and Howard: • Dave: I hear you are having problems selling semiconductors out of your division. Maybe I can help. Howard: You've got that right. We're producing and selling at about 90% of our capacity to outsiders. Last year, we were selling 100% of capacity. Would it be possible for your division to pick up some of our excess capacity? After all, we are part of the same company. • Dave: What kind of price could you give me? • Howard: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 100 semiconductors. Dave: I'm not so sure we can swing that. I was expecting a price break from a "sister" division Howard: Hey, I can only take this "sister" stuff so far. If I give you a price break, our profits will fall from last year's levels. I don't think I could explain that. I'm sorry, but I must remain firm-market price. After all, it's only fair-that's what you would have to pay from an external supplier. • Dave: Fair or not, I think we'll pass. Sorry we couldn't have helped. Is Dave behaving unethically by trying to force the Semiconductor Division into a price break? Comment on Howard's reactions.

Answer 1

Above Question relates to Ethics , price breaking , misuse of other unit shortfall , increase own unit bottom line with discounted unit price as input cost from Other sister unit ---

Please read below details on the above matter .

Sembotix Company has several division including Semi conductor Division . This division sale to both internal & External customer.

The Co’s X ray division uses Semi conductor as a computer in its final Product . Division need to evaluate whether they will purchase from Semi conductor or external Agencies . The market price for semi conductor The market price of Semi Conductor $ 100 per 100 unit. \

Dev – Controller of X ray division and Howard – controller of Semi Conductor . So

X RAY division buying Input material ( Semi conductor ) from Semi Conductor division

As per discussion between ( Dave and Howard ) as mentioned in the Question , We noticed following points :

1. Semi conductor division producing and selling at about 90% of their capacity to outsider at a price of $ 100 per 100 unit . last year division manage an utilize 100% capacity . Howard requested Dave to accept any excess capacity or any utilization shortfall by X ray division because both are coming under same company .
2. X ray division to complete their production process needs Semi conductor . So it will be good for both Unit to support each other and More inter company transaction , will help Semi conductor division to less depend on Outsider .
3. Problem appeared in case of Pricing . Dave – Financial Controller wants to charge less price by Semi conductor unit because they are belong to same company . But Howrd not ready to accept to reduce pricing and impact bottom line .
4. Dave wants to sale product high price and try to get input material at discounted price from Howard and prove to higher management about achievement of Higher Margin . This os not correct / Ethical practice in general .
5. Other side , Howard will face more pressure in relates to Margin . Assume their Input cost is high as compared with Discounted Selling price ( in relates to Inter company sale)
6. Normally Dave “price Break “ is not ethical standard . he wants to take advantage of other unit at discounted price ( because Semi conductor unit is facing challenges to sale outside market )